(Inserts dropped “million” in first paragraph)
By Joseph Ax
NEW YORK, Aug 5 (Reuters) - A U.S. judge on Tuesday reluctantly approved a $285 million fraud settlement between Citigroup Inc and the U.S. Securities and Exchange Commission, two months after an appeals court voided his decision to reject it as inadequate.
U.S. District Judge Jed Rakoff said he had little choice but to approve the deal, which did not require the bank to admit to any wrongdoing. But he said he feared the 2nd U.S. Circuit Court of Appeals’ decision would rob such settlements of any “meaningful oversight.”
“That court has now fixed the menu, leaving this court with nothing but sour grapes,” he wrote in a brief opinion outlining his disappointment.
The 2nd Circuit in June ruled that Rakoff had abused his discretion in rebuffing the settlement in November 2011, finding he had failed to give enough deference to the regulator.
Rakoff had objected to the SEC’s decades-old practice of letting some corporate defendants settle allegations without admitting or denying the charges, a decision that is credited with altering the public debate over such deals.
Last June, SEC Chair Mary Jo White, a former federal prosecutor, adopted a policy of requiring admissions in certain major cases, citing the need for more public accountability.
The SEC complaint against Citigroup concerned a 2007 sale of mortgage-linked securities debt that caused more than $700 million of investor losses.
In his opinion, Rakoff characterized the standard set forth by the 2nd Circuit for approving settlements to be “very modest” and warned that it left judges with little role.
“Nonetheless, this court fears that, as a result of the Court of Appeal’s decision, the settlements reached by governmental regulatory bodies and enforced by the judiciary’s contempt powers will in practice be subject to no meaningful oversight whatsoever,” he said. “But it would be a dereliction of duty for this court to seek to evade the dictates of the Court of Appeals.”
Spokespeople for the SEC and for Citigroup could not immediately be reached for comment.
The case is U.S. Securities and Exchange Commission v. Citigroup Global Markets Inc., U.S. District Court for the Southern District of New York, No. 11-cv-7387. (Reporting by Joseph Ax; Additional reporting by Jonathan Stempel; Editing by Lisa Von Ahn; Editing by Dan Grebler)